New York Wins in Challenge of Tobacco Settlement

An arbitration panel found that New York upheld obligations to tobacco firms under a landmark settlement, rejecting part of a challenge by the companies in which they sought to reduce their payments, the state attorney general said.

The panel ruled that New York should receive $92 million in disputed funds withheld by the tobacco companies over allegations that the state wasn’t following the terms of the deal in 2003, New York Attorney General Eric T. Schneiderman said in a statement today. The ruling wasn’t publicly disclosed.

Cigarette manufacturers including Richmond, Virginia-based Philip Morris USA Inc., which is part of the Altria Group Inc., and Winston-Salem, North Carolina-based R.J. Reynolds Tobacco Co. challenged payments under the 1998 settlement over allegations that states weren’t enforcing certain statutes aimed at protecting the companies from losses in market share to firms that didn’t sign onto the deal.

The arbitration panel rejected the tobacco companies’ claims that New York was failing to uphold its end of the bargain by not taxing cigarette sales on Indian reservations, according to the attorney general’s office.

“This ruling is a huge victory for all New Yorkers, and I applaud the panel for denying big tobacco’s efforts to avoid responsibility for illnesses caused by cigarettes -- and paid for by taxpayers,” Schneiderman said in a statement.

Uphold Obligations

The panel found that six of 15 states failed to uphold obligations related to the protection of market share, including Indiana, Kentucky, Maryland, Missouri, New Mexico and Pennsylvania, according to a statement from R.J. Reynolds. R.J. Reynolds said it won $266 million in future payment reductions. Philip Morris said it won a credit of about $145 million.

In 1998, cigarette makers reached a landmark settlement with 50 U.S. states resolving health claims over tobacco products. New York was owed about $800 million in payments under the settlement in 2003, according to the attorney general’s office.

“We are pleased that the arbitration panel found that six jurisdictions failed to meet their diligent enforcement obligations” under the agreement, Martin L. Holton III, executive vice president and general counsel for R.J. Reynolds, said in a statement today.

Denise Keane, executive vice president and general counsel of Altria Group, said that the decision “sends a strong message about the importance of diligently enforcing the laws that apply to non-participating manufacturers.”

An arbitration panel found that New York upheld obligations to tobacco firms under a landmark settlement, rejecting part of a challenge by the companies in which they sought to reduce their payments, the state attorney general said.